-LRB- CNN -RRB- -- Israeli Prime Minister Benjamin Netanyahu said Sunday that Israel could accept a peace agreement with a `` demilitarized Palestinian state '' as its neighbor .

Israel PM Benjamin Netanyahu said he would agree to peace with Palestinians .

In his first speech accepting the concept of a two-state solution for the Middle East conflict , Netanyahu set rigid conditions for moving forward . Among them : unequivocal Palestinian recognition of Israel as the Jewish national state with Jerusalem as its capital , and full demilitarization for a Palestinian state -- no army , no rockets or missiles , no control of airspace .

`` I say this in a clear voice -- if we receive a guarantee of this demilitarized unit , we will be prepared to reach agreement to a demilitarized Palestine side by side with the Jewish state , '' Netanyahu said , according to a direct translation of his speech at Bar-Ilan University 's Begin-Sadat Center for Strategic Studies in Ramat Gan , Israel .

Initial Palestinian reaction was negative , with Palestinian legislator Mustafa Barghouti saying Netanyahu was calling for creation of a ghetto state .

`` He is proving there is no partner for peace in Israel , '' Barghouti told CNN .

Chief Palestinian Negotiator Saeb Erakat said Netanyahu `` left us with nothing to negotiate as he systematically took nearly every permanent status issue off the table . ''

`` He announced a series of conditions and qualifications that render a viable , independent and sovereign Palestinian state impossible , '' Erakat said .

`` This speech fell far short of every single one of the benchmarks required of Israel in line with international law and existing agreements , '' he said , including the 2003 Roadmap for Peace .

Netanyahu 's speech , billed as a major statement on the peace process , follows President Obama 's recent high-profile speech to the Muslim world and a visit to the region by Obama 's Middle East envoy , former U.S. Sen. George Mitchell .

Obama welcomed Netanyahu 's speech as `` an important step forward '' and said the president remained committed to a two-state solution that would ensure Israel 's security and provide the Palestinians `` a viable state , '' according to a White House statement .

Obama pledged to continue working with all parties `` to see that they fulfill their obligations and responsibilities , '' the statement said .

Netanyahu , of the center-right Likud party , previously refused to endorse a two-state solution .

Netanyahu sounded themes popular with his conservative followers , repeatedly referring to Israel as the Jewish national homeland and demanding recognition of that by all Arab foes , including the Palestinians , for any chance at a peace agreement .

He prompted applause with his statement that `` the land of Israel is homeland to the Jewish people , and that is the basis of our right to it . ''

`` The Palestinian leadership must rise up and say in a very straight way that we are tired of this conflict , we will recognize the right of the Jewish people to have a national homeland in this part of the world , '' Netanyahu said , according to the direct translation .

He said Jerusalem would remain the capital of Israel -- refusing to yield on a sensitive issue for Palestinians -- and that a Palestinian state would have to be fully demilitarized to ensure the safety of Israel .

Obama , in his June 4 speech in Cairo , Egypt , endorsed a two-state solution and urged compromise between `` two peoples with legitimate aspirations . '' He repeated his call for both Israel and the Palestinians to fulfill all obligations under the 2003 Roadmap for Peace , including a halt to any expansion of West Bank settlements by Israel .

Obama called America 's bond with Israel `` unbreakable '' but said Palestinians have suffered in pursuit of a homeland . He also called for an end to Palestinian incitement against Israel and greater security in Palestinian territories .

On Sunday , Netanyahu acknowledged the suffering on both sides from the continuing Middle East conflict , but insisted the roots of the conflict came from the Arab world 's refusal to accept Israel 's right to exist .

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NEW : President Obama calls Benjamin Netanyahu 's speech `` important step forward ''

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Palestinian legislator accuses Netanyahu of calling for creation of ghetto state

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Demilitarized state could not have army or control its airspace , he says

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Before Sunday , Netanyahu had not endorsed a two-state solution